A lack of transparency, dubious real estate deals and now massive fraud -- the Jewish Claims Conference is no stranger to negative headlines. Now, the German government has stepped in to ensure that Holocaust victims get their due.

Merely being allowed into the headquarters of the Conference on Jewish Material Claims against Germany (JCC) in New York is a fairly rare event. Being granted an audience on the 20th floor with a senior official like Gregory Schneider is even more seldom.

The JCC has always been very secretive. It has never even released figures on the number of staff members who work there. Such opaqueness is highly unusual for such a prominent organization which, since it was established in 1951, has disbursed billions of euros from Germany to Holocaust victims around the world.

But now the Claims Conference has been forced to become more open, at least for the time being. The organization has been shaken by a scandal -- a case of "perverse and pervasive fraud," as US Attorney Preet Bharara described it last week.

For years, a gang of swindlers siphoned off money from two compensation funds by falsifying thousands of applications from presumed victims of Nazi oppression. There are six JCC staff members among the 17 defendants who stand accused of misappropriating a total of $42.5 million (€31 million). "It's been a very ugly experience," says Schneider. "We never expected something like that to happen."

This isn't the first time that the JCC has received bad press. The organization has often been the subject of negative headlines in the past, thanks to dubious managers, a lack of transparency and strange business practices. In 2007, for instance, long-standing JCC president Rabbi Israel Singer was forced to resign amid allegations that he had used his position as the secretary-general of the World Jewish Congress to embezzle funds.

Lack of Transparency

Dieter Wiefelspütz, a Social Democrat (SPD) in the German parliament who deals with compensation issues, complains about the organization's lack of transparency. Once, during a visit to New York, he wanted to have a look at the records of the JCC. "I noticed how put off they were that someone wanted information," says Wiefelspütz.

In 2000, the German politician was instrumental in paving the way for former forced laborers to receive compensation. The Claims Conference played a key role here as well. German legislators assigned the JCC the task of organizing the disbursement of payments to the Jewish claimants among the former slave laborers.

Ever since the founding of the organization, the compensation process has always followed the same pattern: Germany makes the money available, the Claims Conference administers it. This has allowed Berlin to avoid the risk of possible conflicts when it comes to recognizing victims' applications.

The same system was used after communist East Germany was dissolved and authorities began the process of returning hundreds of properties in eastern Germany that had belonged to Jews before the Holocaust. In order to avoid years of legal wrangling with potential heirs, the German government set a deadline: All real estate that no one had claimed by the end of 1992 was automatically transferred to the ownership of the Claims Conference. According to the JCC, roughly €1.5 billion flowed into the organization's coffers from the sale of these buildings and properties.

Unusual Entries

But the auctions weren't always kosher. The JCC's long-standing real estate broker, Michael Siegmund, took a side job in 1998 as a member of the supervisory board of Germany's largest property auction house, Deutsche Grundstücksauktionen AG. The auction house earned money from the sale of nearly every piece of real estate that was transferred to the Claims Conference. It wasn't until 2007 that the organization severed its ties with Siegmund. Even today, the internal inquiry is treated like a state secret.

Irate heirs were not the only ones to complain. Other organizations representing victims accused the JCC of amassing enormous reserves and not transferring the proceeds of the sales exclusively to needy Holocaust survivors. People were particularly outraged in Israel, where a large number of victims live. At the time, former Israeli Minister of Pensioner Affairs Rafi Eitan called the representatives of the JCC "a gang."

And now a swindle involving tens of millions of dollars has emerged. It is, it must be said, to the JCC's credit that they uncovered the scandal themselves -- a staff member noticed two unusual entries. Once the fraud had been revealed, the organization quickly realized that there was "a systemic problem," says Schneider, which was "elaborate" and "complex," and involved a total of 5,600 fraudulent applications. SPIEGEL was able to view a number of these papers and the corresponding original documents.

There is, for example, Anna B., who was supposedly born in Kiev in 1930. Her mother and father are dead and she has no siblings -- at least that's what it says in a document that was issued in Rome in 1978. Without any relatives, the information cannot be checked. The application was accompanied by a short biography, which tells how Anna B. and her family had to flee from the Wehrmacht and how they were attacked by German bombers when they attempted to cross the Dnieper River. It says that they first slept in forests and then went into hiding in a village. A horrible ordeal, but it didn't quite happen that way.

As far as the JCC and the FBI can ascertain, the cases of fraud concern actual living individuals, whose life histories were altered to such a degree that they qualified for compensation. One of these is the story of a refugee who lived in the Soviet town of Kirovograd during the German occupation. Much of it is true, with the exception of one essential detail: The man comes from the Ukrainian town of Voroshilovgrad, which was occupied by the Wehrmacht for nearly seven months. Money is only granted to survivors, though, who suffered for at least 18 months under the German occupation.

The cases of fraud mainly revolve around two special funds. The so-called Hardship Fund is primarily for destitute Jewish victims of the Nazis from the former East Bloc who suffer from chronic health problems, fled to the West, and were excluded from other compensation payments from Germany. They receive a one-time payment of €2,500. Ever since the fund was established in 1980, nearly $1 billion has been paid to approximately 349,000 victims and, according to Schneider, an additional 12,000 applications are submitted every year. A second fund is used to make lifelong payments of €291 a month to Jewish survivors who lived in hiding or in ghettos in formerly occupied areas in the East Bloc. To date a total of $3 billion has been paid from this fund.

It takes months of processing to approve each application, says Schneider. But all that checking is no match for the fact that both funds were administered by the leader of the alleged gang of fraudsters: Semjon Domnitser. Five staff members have been accused of being his accomplices. Domnitser himself has denied the allegations.

For the most part, they recruited their applicants via newspaper advertisements in Brighton Beach, a neighborhood in Brooklyn also known as Little Odessa. It smells of borscht and blintzes on the streets; the men wear jogging pants and the women carry fake Gucci bags. Here is where the alleged con artists found their stooges, many of whom were unsuspecting and had actually fled from the Nazis, but didn't qualify for compensation. Others were willing accomplices, born after the war and not even Jewish.

Robbing the Collection Plate

When the applications were approved and the JCC funds came through, half the money went to the applicants and the gang divided up the rest. The system worked for years. When the first suspicions arose last November, the FBI was informed only 72 hours later, says Schneider -- also "to confirm that ... I'm not complicitous, that I wasn't part of it as well."

At the beginning of the year, the JCC informed the German government, which immediately stopped payments in suspicious cases. The Germans are positively indignant. "It's as if somebody had robbed the church collection plate," says an official in the Finance Ministry.

Critics have long accused Berlin of not subjecting the JCC to sufficiently stringent controls. "The Germans feel guilty about the past, so they don't dare open their mouths," says Martin Stern, an Israeli who has made a name for himself with claims on Jewish insurance policies. The latest fraud affair has not only caused material damage, but also severely tarnished the credibility of the Claims Conference, says German parliamentarian Wiefelspütz.

The business practices of the Claims Conference have surprised Berlin on a number of past occasions. As early as 1997, the Federal Audit Office noticed warning signs associated with the so-called Hardship Fund. The Finance Ministry was also informed of irregularities connected with the second special fund back in 2006.

Never Again

The German government realizes that a few cautionary words will not be enough this time around. Officials from the Finance Ministry have spoken with the Claims Conference: They propose that the funds should in the future be administered by one of the JCC branch offices in Frankfurt or Tel Aviv. This would effectively reduce the power of the headquarters in New York.

JCC head Schneider suspects that the affair is far from over. "The one thing that we are very committed to, and I think the German government -- and I hope the German people -- are committed to, is that no survivor, no Nazi victim, should in any way be harmed because we were the victim of fraud," he says.

Now he wants to ensure that there will never be another case like this again. Effective immediately, no more documents will be accepted from applicants, but only directly from archives and government agencies. An internal supervisory unit will conduct spot checks. But coming to terms with the scandal isn't cheap: The JCC has already set aside $500,000 to pay for a consulting firm to keep an eye on the organization's work in the future.

Translated from the German by Paul Cohen

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Europeans make, Jews take.

The modern formula is this: Jews within a host nation endeavor to control the media outlets, legitimize their special interest groups, erode societal standards, and take positions of power in finance, law, industry, organized crime, government, unions, academia, medicine, the arts, and the military. Using the resulting influence, they redirect the host nation's accumulated assets to aid Israel, attack Israel's enemies, and enrich themselves. The Jews call this "leverage", and it weakens the host nation.